China services sector expands by most in three months in August - Caixin PMI

BEIJING (Reuters) - China’s services sector expanded at a faster clip in August as new business orders picked up, a private business survey showed on Tuesday, pointing to renewed strength in a key part of the world’s second-largest economy.

An official gauge of the non-manufacturing sector published last week also showed continued expansion in the services sector, though the pace was slower than in July, bolstering views that China’s economy remains on solid footing.

The Caixin/Markit services purchasing managers’ index (PMI) rose to 52.7 in August - the highest reading in three months - from 51.5 in July.

New business expanded at the fastest pace in three months with a reading of 53.1 in August, while companies also hired the most workers in four months.

A reading above 50 indicates growth, and any lower than that signals contraction.

The Caixin index for factory activity in August was 51.6, the highest in six months.

China is counting on services, particularly high value-added services in finance and technology, to lessen the economy’s traditional reliance on heavy industry and investment.

Government statistics show the services sector, accounting for just over one-half of China’s economy in the first half of 2017, grew 7.7 percent in that period from a year earlier, easily outpacing overall GDP growth of 6.9 percent.

But in a sign of a potential price squeeze on service companies, prices charged fell for the first time since March 2016 while input price inflation picked up in August from July as companies said competition intensified.

Caixin’s composite manufacturing and services PMI, also released on Tuesday, rose to 52.4 in August from 51.9 in July and was the highest in six months.

“The recovery in both manufacturing and services has led the economic outlook to continue to improve,” Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a note accompanying the data release.

“But we need to closely watch whether the recent rises in input costs will weigh on corporate profits and fuel inflation,” Zhong added.

The uptick in China’s economy over the past few months bodes well for the country’s leadership ahead of a once-every-five-years congress of the Communist Party, which will open on Oct. 18.

Economic data to be released over the next few weeks is expected to show momentum will largely hold up through to the end of the year, despite tighter monetary policy.